Party funding review calls for cap on political donations

The Phillips Report on funding of political parties today recommended a cap on donations, a reduction in spending on general election campaigns and an increase in state funding of parties.

The report - commissioned by Tony Blair in the wake of the cash-for-honours allegations - recommends additional state funding of about £20-£25 million a year for the parties in return for reform of their fundraising activities.

Sir Hayden Phillips called on the Government to bring together the three major parties to try to resolve remaining areas of dispute and find a consensus for a way forward.

In a statement, the Prime Minister welcomed Sir Hayden's report and said it "shows very clearly that there is now the basis for a new agreement on the funding and expenditure of political parties".

Mr Blair said he hoped consensus could be reached in talks between Labour, the Conservatives and Liberal Democrats to take place before Parliament breaks for the summer, which he has asked former Whitehall mandarin Sir Hayden to chair.

The talks are intended to pave the way for legislation in the next parliamentary session, said the PM, adding: "The time has come for us to find a new settlement on party funding and expenditure."

In his 25-page report, Sir Hayden said all parties publicly acknowledged the present system for funding politics was "unsustainable", but added that agreement on the way forward was not yet in place.

But he expressed optimism over the possibility of finding a consensus in the upcoming talks, saying that agreement on the future of political funding was "within reach but not in our immediate grasp".

On possibly the most contentious issue facing him, Sir Hayden said a £50,000 limit on donations from individuals or organisations - as demanded by the Conservatives - would be "reasonable and attainable".

But he recognised that this would create considerable difficulties for Labour - which receives the bulk of its income in large donations from trade unions.

To avoid cutting Labour off from the source of most of its income, it may be possible to treat union donations as being made up of many individual gifts from members, he suggested.

But he stressed that this would be acceptable only if a transparent way was agreed of linking each gift to an individual donor. This could involve union members being asked to sign forms confirming that they want their contribution to the union's political fund to support a particular party.

Both Labour and the Conservatives should cut their campaign expenditure over the course of a full Parliament by about £20 million each, to prevent a repeat of the 2005 General Election when the main parties between them spent £90 million in a year, said Sir Hayden.

He endorsed the conclusion of the House of Commons Constitutional Affairs Committee that neither a cap on donations nor a cap on spending would on their own resolve the problems surrounding party funding, while there were great strengths in a system which limited both.

The Phillips Report states that any increase in state funding for political parties should be clearly linked to a measure of their backing among the public, in order to avoid cash being poured into groups with no base of support in the community.

It proposes that eligible parties should receive 50p each year for every vote cast for them in the most recent General Election and 25p for every vote in the most recent ballots for the Scottish Parliament, Welsh Assembly and European Parliament.

In a foreword to his report, Sir Hayden wrote: "There is, in my view, an overriding public interest in acting now to reform party funding.

"Achieving this will require tough decisions on all sides, particularly about donation limits and spending limits.

"There are many areas of agreement. But resolving the undoubted differences of view that remain - essentially on the nature and level of a limit on donations to parties and on the nature of controls on spending - needs, in my view, face-to-face discussion by the parties.

"I therefore recommend that the Government should invite the three largest parties to come together to make a determined effort to solve the remaining areas of dispute.

"The time has come for the major political parties to demonstrate that they can achieve this by consensus."

Sir Hayden said there was "a growing consensus about the nature of changes that should be made", but that his review - launched last March - had now done all that was possible for an independent outsider, and it was time for the parties themselves to thrash out an agreement.

"The parties need to reflect on what they should now do, conscious that all the advice they have received - in common with their own publicly expressed views - is that the present system is unsustainable," he wrote.

"I firmly believe there is now a platform to build a consensus. I hope I will have contributed to making that happen." Other recommendations in the Phillips Report include:

• New measures to prevent the breach of regulations on donations;

• Strengthened controls on expenditure by third parties;

• Public access to better, clearer information about the sources of party income;

• New powers for the Electoral Commission watchdog to oversee the new system.